Emerging Nations Plan Green Banks to Foot Climate Trillions

LAGOS (Capital Markets in Africa) – The world needs a new model to channel private finance into emerging-nation clean projects and commercial banks are among those planning to help create it.

Firms including Macquarie Group Ltd., HSBC Group Plc and Mizuho Financial Group Inc. are scheduled to participate in this week’s Green Bank Design Summit in Paris. They’re joining representatives of 24 developing countries accounting for almost half the world’s greenhouse gases that will be attending the gathering over the next two days.

Nations from China to Chile and India are seeking practical ways to comply with the ambitious emission-reduction targets contained in the Paris climate deal that will require about $1 trillion of finance globally each year through 2050, said Paul Bodnar, managing director of environmental group the Rocky Mountain Institute, which is helping organize the event.

The meeting comes as financing for climate-friendly activities is growing. Issuance of sustainable debt products worldwide surged 26 percent to $247 billion last year, as investors target these offerings to meet their own objectives or mandates on environmental and social impact, according to Bloomberg New Energy Finance.

Macquarie, which bought the U.K.’s Green Investment Group in 2017, is providing capital for green projects in emerging economies and is working to help establish new green banks, said Gavin Templeton, head of GIG’s sustainable finance unit. The British government set up the original GIG in 2012 to back projects from wind farms to biogas plants.

“Crowding in the private sector is going to be essential,” Templeton said. Green banks can reduce risks in markets that aren’t working very well, depending on the location, and encourage private investors to offer products such as credit guarantees for corporate power purchase agreements or long-term debt.

Green banks and climate funds that reduce the market, political and currency risks faced by private investors can be set up simultaneously.

The Development Bank of Southern Africa last year set up a Climate Finance Facility using $55.6 million from the Green Climate Fund, a much larger program set up as part of the Paris deal’s negotiations to help developing nations.

That money and a similar contribution from the DBSA will be leveraged up by tapping other private investors, creating a pool of as much as $500 million, said Jonathan First, a banker at DBSA. The facility, which avoids the need for taxpayer money, is a template that might apply in other emerging countries, he said. Banks will probably take longer to build than funds, but can be put together at the same time.

“The model for the developing world needs to be very different to the developed world” because it can’t drain public funds, First said by phone. “I’m already looking at the first two or three potential transactions,” which may include solar power plants and projects to make transport cleaner in the mining industry.

It’s a sign of progress in climate action that more than 20 emerging nations are now looking at green banks because finance of the global clean transition has always been a pivotal issue for them, said Rocky Mountain Institute’s Bodnar, who previously helped advise former U.S. President Barack Obama on climate policy.

“The fact that a critical mass of them are now exploring a replicable approach that’s rooted in national ownership and national control of climate finance is really significant,” he said by phone.

Source: Bloomberg Business News